A bad executive hire costs at least 30% of first-year earnings by the U.S. Department of Labor’s widely cited estimate, and some analyses put executive-level turnover as high as 213% of annual salary once indirect losses are counted. The visible costs are salary, search fees and severance; the hidden ones are slower decisions, team turnover and delayed strategy.
What costs do most companies forget to count?
| Visible costs | Hidden costs |
|---|---|
| Salary and benefits paid while the executive underperforms, often 6 to 18 months | Decisions made late or wrongly while the seat is compromised |
| Search or recruiting fees, typically 25% to 35% of first-year compensation for retained search | Team attrition and lower morale: 44% of CFOs in a CareerBuilder survey said a bad hire greatly affects morale |
| Severance, estimated at 6 to 12 months of additional pay for senior executives | Strategy and revenue delayed by the months the role is not working |
| The cost of a second search | Time of the CEO and board to fix it |
How do you estimate the cost of a bad executive hire?
Add five lines: (1) total compensation paid until the failure is recognized, (2) the original search fee, (3) severance, (4) the second search, and (5) an estimate of the revenue or decisions lost. Line 5 is the hardest and the one most companies skip.
Illustrative example (not PSRH data). Base salary $200,000; benefits add 31.4% (U.S. Bureau of Labor Statistics figure cited by Built In), so the loaded cost is $262,800 a year. If the failure is recognized after 12 months:
| Line | Amount (USD) |
|---|---|
| Compensation until failure is recognized | 262,800 |
| Original search fee (30% of $200,000 first-year pay) | 60,000 |
| Severance (6 months of base) | 100,000 |
| Second search | 60,000 |
| Total before lost revenue and decisions | 482,800 |
That is about 2.4 times the base salary before counting what the role failed to deliver. A role left empty also costs money: see the cost of an unfilled senior tech role.
How can you lower the risk?
Define success criteria before the search and assess how the person will operate under pressure, not only what they have done. This is the logic behind our executive search for C-Level and AI leaders.
Frequently asked questions
Want to estimate what a bad hire would cost your company? Talk to PSRH Global.
Sources (secondary): the 30% (U.S. Department of Labor), 213% (Zippia), 25% to 35% search fees, severance range, 6 to 18 months and the CareerBuilder survey are all cited in KiTalent, “The True Cost of a Bad Executive Hire”; the 31.4% benefits figure comes from Built In, citing the Bureau of Labor Statistics.
